Asset Pricing: Excess Volatility Puzzle

This lecture delves into the Excess Volatility Puzzle, exploring the absence of arbitrage in asset pricing and the implications of a stochastic discount factor on asset prices. The discussion covers the relationship between stock prices and future dividends, the predictability of returns versus dividends, and the Campbell-Shiller decomposition. The lecture also examines the impact of risk-aversion, habit formation, and heterogeneous agents on asset pricing models.